Rocky Road of Urban Transportation Contracts

Abstract

The provision of urban transport services entails several challenges. Past research has been concerned with economic (e.g., tariff setting and financial sustainability), technological (e.g., different modes or energy sources), social (e.g., the impact of public transportation on social cohesion), and even institutional or policy issues (e.g., privatization). However, few studies focus on governance issues or on the scrutiny of the contractual relations between the competent authorities (local governments) and the operators. The current paper attempts to address this gap in the literature. The objective is to assess the rationale behind each governance structure and the quality of contracting procedures. To accomplish this, the authors consider the Portuguese regulatory framework and analyze six contracts signed between the local governments and the operators, corresponding to three different governance models: municipal companies, mixed companies, and concessionary companies. All cases present serious governance problems, especially regarding the initial decision-making process, the access to the market of private investors, and the clear definition of objectives monitored through output-oriented indicators. The case-study analysis shows that municipal companies are prone to being politically steered, and the complex web of contracts of mixed companies fails to protect the public interest. Although the contract design lacks development, in concessions the conflicts of interest are attenuated and the roles of the public and private partners are better understood.